Philippine credit upgrades: Following the blind

If Philippine President Benigno Aquino III could wear the country’s recent investment credit upgrades like medals earned from war, he doubtless would.

And why not? The decision by Fitch, S&P and the Japanese Credit Rating Agency to sanctify the Philippines’ debt marks a momentous watershed in the economically turbulent annals of the Southeast Asian archipelagic nation. Filipinos and market watchers now sit on the edge of their seats waiting for Moody’s to follow suit, with an evaluation coming in the third quarter of 2013, according to Claro Fernandez, the country’s central bank investor relations chief, as reported in the Philippine Star.

That these credit ratings still matter at all, however, is a perplexing disconnection from the lessons of recent history.

These wizards of debt are the exact same group – also known as the “Big Three” — that led the world into a financial crisis in 2008/07 by deceiving us all to believe that only soundly financed government securities and their private sectors were the recipients of their nods – when in fact information supposedly proving so was conveniently miscalculated.

In a recent article in Rolling Stone, Matt Taibbi writes:

“It’s not a stretch to say the whole financial industry revolves around the compass point of the absolutely safe AAA rating. But the financial crisis happened because AAA ratings stopped being something that had to be earned and turned into something that could be paid for.”

He writes on:

“That this happened is even more amazing because these [credit agencies] naturally have powerful leverage over their clients, as they are part of a quasi-protected industry that enjoys massive de facto state subsidies.”

Today private companies still race to meet governmental regulations by loading up assets that have been favourably rated by the “Big Three” to make a semblance of sound financial backing.

This continues to skew the reality of our global economic outlook. Yet these barometers remain the only guide investors regularly watch, despite their history in leading us all down a blind march.

If Philippine President Benigno Aquino III could wear the country’s recent investment credit upgrades like medals earned from war, he doubtless would.

And why not? The decision by Fitch, S&P and the Japanese Credit Rating Agency to sanctify the Philippines’ debt marks a momentous watershed in the economically turbulent annals of the Southeast Asian archipelagic nation. Filipinos and market watchers now sit on the edge of their seats waiting for Moody’s to follow suit, with an evaluation coming in the third quarter of 2013, according to Claro Fernandez, the country’s central bank investor relations chief, as reported in the Philippine Star.

That these credit ratings still matter at all, however, is a perplexing disconnection from the lessons of recent history.

These wizards of debt are the exact same group – also known as the “Big Three” — that led the world into a financial crisis in 2008/07 by deceiving us all to believe that only soundly financed government securities and their private sectors were the recipients of their nods – when in fact information supposedly proving so was conveniently miscalculated.

In a recent article in Rolling Stone, Matt Taibbi writes:

“It’s not a stretch to say the whole financial industry revolves around the compass point of the absolutely safe AAA rating. But the financial crisis happened because AAA ratings stopped being something that had to be earned and turned into something that could be paid for.”

He writes on:

“That this happened is even more amazing because these [credit agencies] naturally have powerful leverage over their clients, as they are part of a quasi-protected industry that enjoys massive de facto state subsidies.”

Today private companies still race to meet governmental regulations by loading up assets that have been favourably rated by the “Big Three” to make a semblance of sound financial backing.

This continues to skew the reality of our global economic outlook. Yet these barometers remain the only guide investors regularly watch, despite their history in leading us all down a blind march.